PSPs: know your micro-merchants to help reduce fraud

Zac Cohen, General Manager at Trulioo: “there needs to be barriers in place to ensure an appropriate framework of trust and safety is established online”

Once upon a time, the world was dominated by big-box retailers who had easy access to capital and big budgets for marketing, software, hardware, sophisticated systems, and personnel.

Now, the tides have turned and small businesses are doing big things. Entrepreneurs and merchants of all shapes and sizes, operating online and in-person, are able to take advantage of the same services previously only accessible to larger establishments.

The face of business as we know it is changing and in turn, we’re introducing new vernaculars to the existing ecosystem – like micro-merchants.

A micro-merchant is anyone that conducts the majority of their business activities in the form of lower-value transactions. This includes anyone who accepts payment for goods or services – from Etsy to Fiverr, and even a merchant at a farmer’s market or your favorite food truck.

What began as a gig economy – an environment in which temporary workers are contracted for short-term engagements – is now transforming into a burgeoning micro-merchant economy.

Now, it is estimated that there are over 250 million micro-merchants operating worldwide and a study by Intuit predicts that by 2020, 40 percent of American workers will be independent contractors.

Driven by an increasingly mobile workforce and a changing digital landscape, this shift towards a truly borderless marketplace is changing the way we do business.

Why is it so important to know who we’re doing business with?

This move towards a wider business ecosystem is not without issue. As the merchant chain continues to grow, so too does its risk profile.

As a result, there needs to be barriers in place to ensure an appropriate framework of trust and safety is established online – before society descends into a Westworld-esque dystopia of lawlessness.

It’s important to perform due diligence when onboarding new merchants to mitigate risk, prevent fraud and comply with regulatory compliance obligations, such Anti-Money Laundering (AML) rules.

Onboarding a merchant in today’s digital world is no easy feat. Merchant acquirers and payment providers are required to collect a raft of relevant information about the merchant as part of their due diligence processes.

A risk-based approach is key when onboarding merchants; it’s important to know the transaction level and network of a merchant, their industry and what countries they operate in.

The risks of not doing so are high. Criminals have numerous schemes at their fingertips – from using fake companies to perpetrate fraud to creating deceptive websites and setting up fake business accounts.

Doing business with a fraudulent company, criminal activity or terrorist activities not only can cause financial loss, but reputational damage.

How does it work?

Services like Trulioo’s Global Business Verification automates the entire verification process. Businesses are able to check the names of businesses against AML watch lists; parse and analyse ownership information to determine beneficial ownership structure; and run an AML/KYC check on the beneficial owners themselves – all through a single solution. This eliminates the need to integrate multiple solutions and perform manual checks against multiple databases.

What are the benefits?

With the dramatic rise of micro-merchants there is a clear case for developing appropriate onboarding procedures and processes that facilitate financial inclusion and trust.

The evolution of micro-merchants is already taking great strides to bridge the gap for the financially unincluded as effectively anyone can be a merchant – from a person selling their wares online to someone operating a taco stand in the middle of a bustling city. The ease of becoming a micro-merchant is also helping individuals in under-developed countries, who previously may have been forced to sell their goods to a reseller who then added significant mark-up. Now, those vendors can sell directly to their customers – no matter where they are in the world. This micro-merchant uprising is being further aided by the digital payment landscape which reduces transaction costs, while increasing efficiency and transparency, thus overriding many traditional barriers such as cost, access, location and the availability of traditional POS systems.

However, as alluded to earlier – with the increase in micro-merchants, comes an increased level of risk so trust becomes crucial. The ability to know who you’re doing business with is becoming increasingly important and proper protocols need to be put in place to keep not only merchant acquirers and the merchants themselves safe – but to ensure the safety of everyone transacting with merchants.

When doing business with a new entity, having proper due diligence procedures in place will help you meet regulatory compliance requirements while also saving you time, money and resources. With the right checks in place, businesses can build the necessary trust online to safely onboard new customers, suppliers and third parties, and continue to expand globally.

About Zac Cohen

Zac Cohen is an experienced business leader focused on strategic planning and execution, corporate management, risk management, and operational efficiencies. With over 10 years of startup and tech experience - primarily in the compliance space - Zac has built and scaled companies by applying a proven people-systems approach of collaboration, ownership, best practices, and accountability. His passion remains technology and its ability to impact the world. Zac is currently the General Manager at Trulioo – a hyper-growth Vancouver startup solving global identity problems associated with international compliance obligations, including cross-border AML & KYC.

About Trulioo

Trulioo is a global identity and business verification company that provides secure access to reliable, independent, and trusted data sources worldwide to instantly verify consumers and business entities online.
Trulioo’s bank-grade online verification platform, GlobalGateway, helps organizations comply with Anti-Money Laundering (AML) and Customer Due Diligence (CDD) requirements by automating Know Your Customer (KYC) and Know Your Business (KYB) workflows across borders through a single solution.